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Financial illiteracy is an epidemic that impacts billions of people worldwide. New numbers from a Bankrate survey prove just how dire the personal finance situation is—and how far behind most people are when it comes to being "comfortable" with money.
To feel comfortable, Americans think they need a $233,000 salary and nearly $1.3 million for retirement. The problem is the national average U.S. household income in 2021 was only $97,962, and the median U.S. income was $69,717. On top of that, debt in America is out of control. American household debt hit a record $16.9 trillion at the end of 2022, according to the Federal Reserve. So, what people say they need to be comfortable versus what they actually earn and spend are worlds apart.
For more perspective into just how dire this situation is, consider this:
—The average 65-year-old only has $426,070 for retirement, nowhere near the $1.3 million people said they would need to feel comfortable;
—Americans' total credit card balance was $986 billion in the first quarter of 2023, according to the latest consumer debt data from the Federal Reserve Bank of New York;
—1 in 4 U.S. parents say they've struggled to afford food or housing in the past year, according to the Pew Research Center.
The problems are many, but it starts with Americans lacking essential financial literacy skills, including budgeting, saving, and investing. Without this knowledge, individuals struggle to manage their finances effectively and make informed decisions about their money.
Public schools around the country receive federal funding for STEM and STEAM programs on mobile game design, dance choreography, and even hydroponic farming, all requiring expensive equipment, studios and labs. Why can't the education system fund a Personal Finance 101 course that teaches real world concepts?
Many schools are teaching a curriculum from 50 years ago that focuses on writing a check and balancing a checkbook, instead of everyday concepts to make money grow like the Rule of 72, the time value of money, and how compound interest works. There's a real desire for this knowledge. In a recent survey, American young adults were asked what high school level course would benefit them the most. The majority answered, "personal finance."
When children are ill-prepared, they struggle immensely with money as adults. Sudden life events such as job loss, medical emergencies, and costly home or car repair bills can severely impact a person's financial situation, even if they were previously stable. Sixty-eight percent of people are worried they wouldn't be able to cover their living expenses for just one month if they lost their primary source of income, and 57 percent of U.S. adults are currently unable to afford a $1,000 emergency expense.
If that isn't bad enough, it's a never-ending cycle that spills over into the later years of life. In fact, 61 percent of people have a greater fear of running out of money in retirement than dying, according to a 2023 Allianz Life study. A lifetime of blissful ignorance around money explains why so many people face retirement panic when they see how little they'll be forced to live on for the rest of their days.
The lack of financial literacy is just the beginning. Our culture is completely backwards when it comes to money. We emphasize consumption and the acquisition of material goods which leads to overspending and increased debt. In addition, entitlement is rampant. It's the opposite mentality of our great grandparents, many whom would be turning over in their graves because they came to America to work hard, make money, and create a legacy for themselves. There's a world of financial abundance out there, and it's available to those who embrace an entrepreneurial spirit and take the proverbial bull by the horns.
Whatever stage of life you're in, the time to build wealth is now. Don't fall into the flawed thinking trap that wealth is something you start building "when you have money." Saving doesn't have to involve large sums of money. All it takes is developing the habit of setting aside money every day or every week. Then, be patient and let time take over. If you invest $300 a month (assuming a 7 percent interest rate compounded annually), after 10 years you will have over $50,000. It all started with just $10 a day.
The bottom line is there are many reasons people struggle with money, and earning that $233,000 salary or having $1.3 million in a retirement account is more a pipedream than a reality for most. It doesn't have to be this way. It starts by changing your financial beliefs, learning how money works once and for all, and taking action.
Kim Scouller is a certified financial educator and co-author of the book, How Money Work for Women: Take Control or Lose It.
The views expressed in this article are the writer's own.
